Edmonton Bookkeeper | How To Pay Dividends In Business
There are many things that business owners have to think of in terms of running their businesses Edmonton bookkeeper, one of the easiest things for them to understand, in order to avoid problems is learning how shareholder loans work in their business. By understanding how to pay themselves salary or personal dividends out of their corporation properly, business owners can earn a living, and avoid paying high taxes.
One of the first things that business owners need to understand when it comes to paying themselves in their business says Edmonton bookkeeper, is that they need to take the money out of their business as a dividend or as salary and not a paycheck. However, business owners also need to understand that every time they take money out, they over the company back. This shareholder loan is kept track of as a running total dating back to the beginning of the corporation.
A business owner is only allowed to owe their corporation no longer than two years. They either have to pay that money back to their company by the end of that second year, or clear the balance. Since business owners have taken that money out to live off of, and have no plans on paying it back, they need to clear that balance. Edmonton bookkeeper says how they clear that balance, is by declaring their salary or personal dividends on their personal tax return. Everyone, including business owners pays personal taxes on their salary or dividends, so they must declare the amount that they have taken in order to pay their personal taxes. They must do this before the end of the second year that they owed their corporation.
If the business owner does not clear the amount of that the older corporation before the end of the second year says Edmonton bookkeeper, that means the may get assessed by CRA for all the taxes that they owe and have not claimed. CRA can hit a business owner with this amount owing at any time and without warning. In order to avoid getting hit with this huge tax bill, business owners should be aware that they need to clear their balance within two years.
In order to keep meticulous track of all of the money that they have taken out of their account as dividends, there are several things that business owners can do. The first one says Edmonton bookkeeper is by creating a separate bank account specifically for business owners to take their dividends out. By limiting the number of transactions in that account, business owners cannot only avoid errors, but they can make it easier to look back on the account and see how much money they have taken. A recommendation is for a business owner to take one or two draws out of that account each month. One for their personal tax, and one for their dividends. This way, a business owner will be able to see the amount of money that they are taking, and if there’s any additional transactions, the business owner and their accountant will be able to easily see that error and account for it.
Entrepreneurs often believe that they are entitled to take out any money that they have profited in their business without accounting for to properly says Edmonton bookkeeper. Unfortunately, this isn’t the case. Business owners actually need to take meticulous records of money that they take it out of their corporation, because they owe that money back to their corporation as a shareholder loan. By learning how to utilize shareholder loans in their business, business owners can learn how to pay themselves, pay the appropriate taxes, and avoid penalties.
The first things that business owners should understand is they need to take money out of their business as a shareholder loan and not as a paycheck. Every dollar that a business owner takes out of their company, they owe it back. This is kept track as a complete running total says Edmonton bookkeeper. For this reason, business owners should keep extremely good records of all of the money that they have taken out of their business. Edmonton bookkeeper recommends that a good way of doing this, is by creating a bank account that is specifically designed for a business owner taking money for dividends or salary. This way, a business owner will be able to see very easily all of the money that they have taken out in the year from their account. This also will limit the number of transactions that are happening in the account, making it easy to review the transactions, find any errors, and review historical data if necessary.
Since every dollar that a business takes out of their company they owe back to that company, business owners need to keep track. Since they actually have no intention of paying back the money that they take out of their business, because it is their salary, business owners need to declare how much money they’ve taken out of their business on their taxes and that will clear their balance. Clearing the balance means declaring to CRA how much money they’ve taken out of their business, once they’ve cleared that amount, they start their running total again. A business owner must not owe their corporation for longer than two consecutive years. We have to take care to clear their balance before the end of the second year or risk getting assessed by the CRA says Edmonton bookkeeper.
If a business owner is assessed by the CRA, that means at any time and without warning, CRA can add the amount that they owe in back taxes to a business owners tax bill. If a business owner was not aware that they needed to clear their shareholders loan balance in a certain amount of time could have several years of back taxes owed to the government. This can be financially devastating to a business as well as the business owner. We would love to have you as a guest!